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Rethinking Reserve Bank of India (RBI) Regulations for MFIs: An Analysis of Microfinance Clients from Urban and Semi-urban Communities
Aligning RBI guidelines on MFI priority sector lending eligibility with microfinance client profiles
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This study investigates microfinance clients' borrowing and saving practices, inclusion within a formal banking system, and spending patterns in relation to microloans through interviews with urban and semi-urban clients in five Indian states. It also examines whether Reserve Bank of India (RBI) guidelines regarding the eligibility of MFIs for priority sector lending align with the profiles of microfinance clients. Centre for Microfinance conducted the study between January-March 2012, using a convenience sampling method. Findings include:
- Entrepreneurial activity was not the main source of income for most interviewed households;
- Formal banking system was not the primary source of credit, although most MFI clients had access to it;
- Saving was common amongst sampled clients and there was an increase in savings rate among those who had access to a formal banking system;
- Income of most microfinance clients was likely to be more than RBI's recommended household income;
- Pure income might not be the best metric to regulate this industry;
- It would be more suitable to calculate overall welfare of a household using core indicators such as assets.
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